Bar Associations: Protecting Consumers or the Status Quo?

Status Quo

Some Bar Associations are behind the times. And some are challenged by the dual and potentially conflicting roles they play: one, to self-regulate the practice of law in order to protect consumers; and two, to protect the guild of lawyers from competition. A recent Texas State Bar ethics ruling demands a reaction because not only does it fail to protect consumers, it creates additional barriers for advancing the profession.

The ruling states that a Texas law firm may not use "officer" or "principal" in job titles for non-lawyer employees in the firm, as doing so may suggest that these employees exert control or influence over the work of the lawyers, which is a violation of the rules of professional conduct. Additionally, the ruling states that bonus compensation for such non-lawyers can't be formulaically based on the firm's financial performance, as this would constitute unauthorized fee-sharing with non-lawyers. The ruling purports to protect the consumers of legal services, presumably under the premise that non-lawyers are simply not qualified to influence the delivery of legal services and any such interference constitutes a prima facie case of wrongdoing. (See what I did there, pretending to speak like a lawyer?!)

In my role as President of the Legal Marketing Association, and on behalf of our 4,000+ members, I collaborated with the leaders of other legal associations to draft a response urging the Texas Bar to reconsider its stance. These association leaders are well-credentialed professionals who are dedicated to improving the operations of law firms, big and small, and yes, improving the delivery of legal services. And one could argue that by specifically excluding such voices, the legal profession is holding itself back. You should read our letter. It's reasonable and articulate and provides good food for thought.

But speaking individually as a former CEO, I'll be a bit bolder. The Texas ethics commission ruling is ridiculous and unsound. It reflects the worst of the closed-minded lawyer mindset: a belief that lawyers alone can define "quality" in the delivery of legal services. I can assure you, most CEOs spend very little time ruminating about the state of their suppliers' industries or professions, unless some impending disruption in these fields will impair our business performance. And lawyers are doing just that. So, wearing my CEO hat, here's my reaction:

Business clients are unhappy. Lawyers in the mid-size and big firms that serve us often do a terrible job of communicating. They fail to properly manage expectations by limiting the client's surprise. They tend to treat each matter as if it's unique and infinitely variable, yet at the same time expect us to believe their experience in a given field is meaningful. They believe in charging higher fees based on the length of time they've practiced, even when they are unable or unwilling to demonstrate this experience by using matter budgets or project plans. And their fees are typically established irrespective of the value I place on the services rendered, and what alternatives exist for me obtain these same services elsewhere, assuming that the seniority of the lawyer and the time necessary to deliver the work are the primary drivers of value.  They claim that non-lawyers in a law firm, or worse, non-lawyers providing legal services outside the structure of a law firm, e.g., an LPO, must be incapable of providing quality legal services, even when these alternative providers can unassailably demonstrate higher quality at a lower cost.

Does the Texas ruling really protect the consumer? There are different consumers of legal services. As a seasoned corporate executive, mindful of my corporation's risk tolerance and business objectives, and well-trained as a steward of my corporation's hard-earned capital, I don't need as much hand holding. I have long experience managing complex M&A transactions, launching new products requiring IP protection, managing layoffs and plant closures, negotiating labor contracts, and being deposed in contracts disputes. I want the Bar to protect me by ensuring my lawyers are competent in business issues. I can find a thousand lawyers who can conduct legal research, identify precedents, and draft a memo telling why taking some action carries risk. I find far fewer lawyers who think like me and understand the business impact of my legal issues.

And if these so-called protections are not, in fact, in the interests of consumers, might they instead serve to protect the interests of lawyers? It's a curious industry that establishes its own operating rules, self-regulates its members' conduct, decides for itself what competition it will allow, and purposely addresses these issues without the input (or interference?) of anyone outside the profession.  I'm not suggesting that there's a vast conspiracy with nefarious purposes, but I am suggesting that human nature operating within such a closed system is bound to create confusion between "what's right" and "what's right for us." From my perspective, the Texas Bar ruling has a lot to do with protecting lawyers from adopting modern, sound business practices, as if somehow doing so is inconsistent with practicing law.

If a senior business person in a law firm can help the lawyer-leaders understand how to budget, how to profit from efficiency, how to embrace continuous improvement, how to lower fees while improving quality, how to better communicate with unhappy clients, and more, then not only should that businessperson be given a title befitting that knowledge, he or she should be given a compensation package commensurate with that experience, experience that is highly prized in the business arena. And if growing the firm's profits is a consequence of improving client satisfaction, then reward that businessperson in some way commensurate with his or her impact on business performance. If you're unable to distinguish between a non-lawyer who improves firm operations and client-focus, and one who is engaged in the unauthorized practice of law, I question your competence as a lawyer.

If I can't trust you to understand simple business mechanics -- the issues I deal with all day, every day -- and if I can't trust you to recognize your own deficiencies and fill these gaps with competent professionals -- and instead you harangue those who speak truth to power and sit smugly in an alternate reality where partners cannot be wrong -- and if I can't trust your pals in the Bar to protect me from your deficiencies -- and instead they issue rulings designed to forbid competent professionals from meeting my needs -- then I can't possibly trust you to give me sound legal advice. THIS is why law firms are suffering, not because demand for legal services is down, or because bean counters value price over quality.

By the way, let's banish the "non-lawyer" label as unnecessarily non-descriptive and non-productive, prone to nonsense. Defining something by what it's not isn't all that helpful, is it? Or keep it, if it makes lawyers feel better. No one really cares. But understand that corporate executives don't spend much time drawing such distinctions of pedigree and titles within their vendor organizations, so partners should feel free to proudly carry the label of "vendor" or "supplier." We care mostly about rising legal costs and declining value, not labels. The adjacent graphic represents an excerpt from an actual corporate budget representing exactly how even the most prestigious senior partner with sterling credentials is categorized. And yet you rarely hear corporate executives insist on calling partners “non-strategic suppliers.”

If the Bar wants to focus on truth-in-labeling, can we look into :

• Law firm leaders who haven't received a single day of formal management training yet carry the label of practice group leader, or managing partner?

• Non-equity or income “partners” who are merely highly-compensated employees, not equity shareholders in a partnership?

• Can we look into Marketing Partners who have never taken a marketing course, Technology Partners who have no technology training, Finance Partners with no finance or accounting degree?

• Can we look into pitches and proposals that compile disparate experience in creative ways, purporting to reflect deep subject matter experience but instead reflect the common but misguided notion that "We're smart lawyers. If we win the work we can figure out how to do it later?"

• Can we look into lawyers' over-reliance on hourly billing rate cards to purportedly convey the price of legal services, when in fact rates are but one element of the formula for the overall cost and the lack of other data is purposely misleading?

• Can we look into published billing rates that reflect an inflated “sticker” price as compared to actual receivables that perpetually reflect a much lower realized price?

• Can we look at inconsistent discounting and write-down policies in use in firms that bear no relation to "key client" programs?

There's a lot wrong with the modern law firm business. It takes smart people with relevant experience to solve these problems. Forbidding competent professionals to lend their experience isn't productive. Insisting that a law degree is the only distinction necessary to decide what is and what is not "good" for clients is myopic. I call on the Texas Bar to review and revise its ruling to reflect the cold truth that protecting the status quo is not what clients want. Progress waits for no one, and the Bar Associations and incumbent leaders of the profession can wring their hands and lament the intrusion of economic forces, or they can collectively step up to reshape the profession. Relevance is recoverable. Roles as trusted strategic advisors are there for the taking. Your move, lawyers.

View my interview here with Lee Pacchia on the Business of Law webcast at Mimesis Law TV. 

Timothy B. Corcoran is principal of Corcoran Consulting Group, with offices in New York, Charlottesville, and Sydney, and a global client base. He’s a Trustee and Fellow of the College of Law Practice Management, an American Lawyer Research Fellow, a Teaching Fellow at the Australia College of Law, and a past president and a member of the Hall of Fame of the Legal Marketing Association. A former CEO, Tim guides law firm and law department leaders through the profitable disruption of outdated business models. Tim can be reached at Tim@BringInTim.com and +1.609.557.7311.

Law Firms Getting Schooled

Law firm partners have a curious approach to addressing client needs.  Imagine a crowded subway car in which a General Counsel is sitting comfortably while a Biglaw partner stands next to him. When the train lurches, the partner inadvertently stomps on the GC’s foot. “Ouch,” exclaims the GC, “You’re standing on my foot.” The partner’s response is, naturally, to call the office and direct three associates to drop everything and enroll in medical school, to specialize in podiatry, and to attend only night classes so as not to miss work, in order to ensure that, should the client’s foot pain persist in the future, the firm will be in a good position to resolve the issue.

This is what I envisioned as I read the recent article by Nathalie Pierrepont of The Recorder, an ALM publication, describing a new associate training program at Orrick. In “Orrick Puts Would-Be Partners Through Business Boot Camp” (subscription may be necessary) we learn of a refreshing and innovative program to teach business skills to lawyers, specifically senior associates on the partner track. The program, produced by The Fullbridge Program, covers a number of business topics that will help lawyers speak the language of business.  The program, or something like it, should be required in every law school immediately. And it should be required of every practicing lawyer who wants to serve business clients. I’ve talked at length with Andrew Notaro, executive director of Fullbridge – he gets it and he provides a necessary service. Trouble is, most firms organize these programs for associates – law firms may be sending the wrong students to class!

Or more precisely, the law firm leaders, by failing to enroll fellow partners, are missing the central point of business leaders’ most common complaint. “Our outside law firms don’t understand our business” rarely means that an associate billed to a M&A transaction is unable to calculate the after tax weighted average cost of capital. Or that the lack of such knowledge means she’s therefore unable to properly advise on the relative risk of this investment over alternative courses of action.

More often it’s something less profound and business-mathy: “The partner in charge of this transaction, despite having led a half dozen substantially similar transactions for us in the last five years, once again underestimated the legal costs, this time by a substantial margin, and exacerbated the situation by failing to alert us until long after we closed our quarterly budget re-forecast process.”

Or “After relying on the same litigation counsel for numerous cases and constantly fighting over growing fees, a new law firm identified two key areas upstream in our business processes that we didn't realize were creating ongoing exposure. We addressed the exposure and within months the number of filings plummeted - and so did our legal costs.”

Pulling an all-nighter to cram for the test isn’t learning.

Perhaps my cynicism stems from hearing one too many in-house counsel or business client express frustration with outside counsel and their lack of interest, empathy, and insights into the client’s business.  To be fair, many law firms have tried to address the issue, but many have also failed on execution:

• Technology: Sophisticated tools have been purchased and breathlessly rolled out to help lawyers obtain “the most comprehensive go-to-lunch report” on a moment’s notice when meeting with a client or prospective client. However, few clients are impressed with a partner whose industry knowledge is parroting analyst report headlines or recent stock movements.

• People: New roles have emerged in recent years, such as competitive intelligence specialists, whose primary skill is analyzing and synthesizing vast sums of information to proactively identify compelling marketing opportunities that provide a competitive advantage. The good ones are worth their weight in gold! Regrettably, more than a few spend a great deal of time manually creating last second, on-demand, “urgent” go-to-lunch reports rather than help inform strategy, resulting in fruitless pursuits of the wrong clients at the wrong rates.

• Process: Some law firms have implemented client teams with the objective of capturing client insights, sharing learnings, cross-pollinating ideas, and collaborating to increase cross-selling opportunities. But even eager people stumble in the face of flawed processes -- and compensation systems that reward isolationist activity coupled with firm-centric org structures that inhibit cross-functional interaction are most assuredly flawed processes.

So what does work?

As a former business leader, I was pleasantly surprised when my outside advisers were familiar with my business segment. On a few occasions deep industry insight is crucial, but for many companies legal needs aren’t so unique to an industry that specialized knowledge is crucial. What most need, and what is a constant struggle to find, are advisers who understand our appetite for risk, how we make build vs. buy decisions, what factors matter and who’s involved in go/no-go decisions on major capital investments, our budgeting and re-budgeting (and re-re-budgeting!) schedule, and the relative importance we place on legal advice in the overall context of running a business in fiercely competitive markets.  And we are often just as dissatisfied with in-house counsel as we are with outside counsel in this regard!

In case my point is buried, I’ll emphasize it: the partners who send their associates to business school need to attend business school first. The weakest link in the law firm value chain isn’t the associates, it’s the partners.  Much of what business leaders and in-house counsel describe as “knowing our business” refers to how we do business, not our SIC codes or movements in our EPS. What keeps a business manager up at night? It’s not placing a multi-million dollar bet on a new product line or new acquisition – we do that all the time because of our high tolerance for risk and our endless quest to gain a competitive edge. It’s looking like an idiot in front of my CEO when the advisers I hire continually go over budget after claiming to be deep subject matter experts who have advised in this sort of matter hundreds of times previously. We all look incompetent as a result, and that’s not the sort of reputation that earns me a seat in the Boardroom.

So high marks to Orrick for making this investment in its lawyers' professional development, for an investment it is, not an expense. It will surely pay dividends down the road as business-savvy lawyers establish beachheads as trusted advisors rather than as expensive suppliers.  But collectively, we can all do more to serve our clients' needs. And it should start at the top of the law firm hierarchy where partners with demonstrably improved business acumen can deliver immediate benefits, for their clients and their law firms.  What are you waiting for?

Timothy B. Corcoran is the 2014 President of the Legal Marketing Association and an elected Fellow of the College of Law Practice Management. He delivers keynote presentations, conducts workshops, and advises leaders of law firms, in-house legal departments, and legal service providers on how to profit in a time of great change.  To inquire about his services, contact him at +1.609.557.7311 or at tim@corcoranconsultinggroup.com.

What's next for law firm leaders?

MimesisLaw: "Senior Privilege: How Some Law Firms Stifle Rainmaker Development"

I met with Lee Pacchia on Mimesis Law's "Business of Law" web TV program to discuss, among other topics, my recent post in which I described how some law firms are stifling the growth of future rainmakers.  I made a few bold comments, many of which are culled from the remarks and presentations I deliver at numerous law firm and law department retreats, and from previous articles. Yes, it's easy to lob critiques. But it's also easy to hide from the truth. There are answers for the major challenges facing law firm leaders, yet we see so few bold, progressive moves on any scale.

"Law firm leaders tend to think their business is so complex and challenging and unlike others." Nonsense. Most complexities are self-induced. Many leaders are challenged by the changing incentives driven by client price pressure. Finding the right balance between rewarding the origination of new matters, which is important in all industries and should be rewarded well, and those who deliver the work, maintain the relationship, upsell or cross-sell additional services, or focus on client retention, can be challenging, but there are hundreds of compensation schemes used every day in every business that can provide guidance. Law firm leaders who invent their own plans to address their "unique" business model are often simply unaware of these other models.

"I've come around to the view that you can't change behavior unless you change the compensation plan first." Many partners won't say it out loud, but I will: if it looks like changing behavior is contrary to a partner's financial self-interest, it's easy to find numerous objections that pertain to quality, or client satisfaction, or the infinite variability of legal matters. Fact is, it's not a choice between making more money and making less money. If we have to change the compensation plans to emphasize different outcomes such as, say, profitability, client retention, and client satisfaction, and de-emphasize the longtime inefficient proxy for all of this, namely hours, then so be it. Good lawyers will continue to make good money.

"If you're hiring the wrong people and you can't trust them to write an article that puts the firm in a positive light, then I'd look in the mirror and say who am I hiring and what are my skills as a manager?"  If you can't trust the people you hire, then fire yourself as a manager, since you're evidently terrible at recruiting, on-boarding, and training.

"The younger generation is not bound by the traditional partnership path." It's a cop out to say that the younger generation of lawyers doesn't want to work hard just because many tend to eschew the traditional pursuit of Biglaw partnership. For one, they're aware of the math that illustrates the extraordinary unlikelihood that the firm hiring them out of law school will anoint them partner someday, regardless of how hard they work. They're also adaptable and flexible and value their time differently. Embrace their creativity and use this flexible work force as a competitive advantage.

"It's easy to demonstrate that changing behaviors will put more money in the partners' pockets." Many partners embrace the fallacy of the false dilemma when they assume they must either pocket profits or reinvest in the firm for future growth, i.e., deplete the profits and thereby lower their compensation. By maximizing short-term profits, they have always forgone more lucrative long-term profits. They're like day traders flipping a stock purchased in the morning for $32.05 and selling it in the afternoon for $33.50, yet ignoring the better option of holding onto the stock for 6 months until it reaches $176. Of course it's a bit more complex than this... but not much.

"A law firm partnership model is a ridiculous model for governance. Giving people an equal vote on how an operation should run is silly." This is not even worthy of a lengthy debate, as it's been long-settled in every other business on the planet. Corporate stakeholders include clients, competitors, employees, bond holders, equity investors, management, executive leadership, and board members, and yet very few of these stakeholders have a voice in the daily operations of the enterprise. Allowing every partner a say in operations just because he or she has an equity stake is as sensible and noisy and ill-informed as conducting a political debate on Facebook and expecting a rational dialogue.

"Nowhere in my job description does it say I've got to protect the model of the Biglaw business." Dominant incumbents in any market will erect any roadblock to change under the guise of quality, competitiveness, and customer needs, but in reality most of these roadblocks are designed to protect the status quo. It's human nature. Whether it's auto dealers in New Jersey claiming that direct-to-customer sales are bad for customers, or bar associations prohibiting alternative business structures, the actual voice of the customer is often quite muted in the debate.

"A potted plant can demand discounts from suppliers." The notion of continuous improvement in a business is not just about perpetually lowering costs, though that's a key outcome. It's about improving quality and throughput and competitiveness while lowering the marginal costs of production. After several years of essentially demanding discounts from law firms, many GCs have to get more creative. And many are struggling. This speaks to the increased role of procurement (which is as much about analytics as it is about cost). There has never been a more opportune time for law firms and law departments to collaborate to find a better way.

Timothy B. Corcoran is the 2014 President of the Legal Marketing Association and an elected Fellow of the College of Law Practice Management. He delivers keynote presentations, conducts workshops, and advises leaders of law firms, in-house legal departments and legal service providers on how to profit in a time of great change.  To inquire about his services, contact him at +1.609.557.7311 or at tim@corcoranconsultinggroup.com.

Ceding the Stage - Lessons in Leadership

I've been engaged in a lively discussion with other legal marketers in which two topics I love, basketball and leadership, have come together nicely.  You don't have to be a basketball fan, or even a sports fan, to benefit from the leadership lessons that are often played out, literally, on the courts and fields for all to see. Many sports teams succeed because of superstars, those supreme talents who lead their teams in numerous statistical categories. Some achieve an even higher, supernatural, level, like NBA stars past and present Michael Jordan and Kobe Bryant, both of whom have earned the league's top offensive and defensive accolades and are considered, respectively, the greatest player of all time and in the running for 2nd greatest of all time.  Jordan won the league scoring title a record 10 times and earned all-defensive first team honors 9 times. Bryant also earned all-defensive first team honors 9 times, led the league in scoring twice, has the 2nd highest scoring game in league history, and is the youngest player to score 25,000 points. Notably, while Jordan won 6 championships and Bryant has won 5 (so far), neither has been able to win a ring without the contributions of other stars and significant role players. Jordan had Scottie Pippen, voted one of the top 50 players in league history, and Kobe had Shaquille O'Neal, another top 50 player, and Pau Gasol, a former NBA rookie of the year, two-time Olympic silver medalist, and two-time European player of the year. Enough with the basketball history lesson. What's the larger leadership lesson?

On some teams, transcendent talent is enough. For most of us, we need a team around us in order to succeed. But what happens when the leaders refuse to cede the stage, when the leaders won't sacrifice their personal statistics for the larger good, saying they want to win but doing everything they can to erect obstacles to success?  I was engaged by a law firm that had plateaued in its growth and wanted my help "shaking the cobwebs" from some of its weaker junior partners so they'd generate more business and "put a little fear" into the associates who were coasting by doing work the partners brought in but who weren't developing their own books of business.  Sure enough, just as with every law firm, there were some junior partners and associates who needed assistance getting out of the office to network and create some visibility for their practice. But the more we explored avenues for networking, the more I learned that these were "off limits."  Upon further discovery, I learned that the most successful partners had established a framework that perpetuated an us vs. them mentality. They honestly and earnestly believed the compensation plans were thoughtfully designed to foster collaboration, but had they specifically set out to erect barriers to collaboration they could not have devised a more insidious scheme.

Many leaders want success, but only on their terms. The constraints they place on winning are often the very inhibitors to success. This firm implemented a compensation structure and operating practices that include the following constraints:

• There is no formula for sharing origination credit. Partners are left to decide how, and if, to allocate credit, with the not unexpected outcome that few partners ever share credit
• The originating partner receives all origination credit for all future matters in perpetuity, whether that partner is involved in delivering any of the work, up-selling or cross-selling new matters, or has any interaction whatsoever with the client ever again
• Partners are not required to introduce any lawyers into their relationships, so as not to "muddy" the origination credit issue. After numerous complaints from other lawyers who not surprisingly wanted a share of new matters, the partners responded not by providing guidance for collaboration but by specifically instructing relationship partners to limit client interaction with other lawyers so as to avoid internal disputes
• No lawyer is allowed to write articles or present at conferences or events, except for partners. This is designed to provide "quality control" and protect the firm's reputation
• Partners who are heavily involved in client industry associations, and many are, may prohibit other firm lawyers from participating. So if a partner serves on the board of an association, she or he may forbid more junior lawyers from attending or participating at any level, so as not to create any confusion over origination credit generated from clients in this sector

Switching back to our sports metaphor, when superstars refuse to cede the stage, often in the form of individual stats or playing time or compensation, even though they profess an all-consuming desire to win, they often, and not surprisingly, don't win. This reluctance to allow others to shine is specifically what's holding back the team. Any objective observer can review the above policies and identify numerous opportunities to improve collaboration, share credit, and grow client relationships at multiple levels, just as any casual observer can watch a basketball game and recognize a ball hog who refuses to pass to the open man.  When I confronted the senior partners on these issues, their advice to the junior lawyers was to "find your own category to make a name for yourself, and then you too can reap the rewards and benefits of 'owning' your own client niche."  Despite my several attempts at illustrating the benefits of collaboration using simple mathematical formulae, the partners were too protective of their own stats to change.

Note: Plot the expected value of generating 100% credit for a limited number of matters against the expected value of generating partial credit for matters that increase in both volume, size, and repeatability due to collaborative efforts, and the result will invariably demonstrate that collaboration is far more lucrative in both the short-term and long-term.  Said another way: 100% of nothing is still nothing. Often infecting this expected value calculation is both a failure to grasp the difference between optimism and probability, and a tendency to see winning as a zero-sum game.

Eventually all stars fade. In sports, we often see some former superstars sign on to another team as role players in a last ditch attempt to win a ring before their careers are over.  Many others retire, often unwillingly, because they can't convince their own team, or any new team, to rely on them to be the superstar. I can imagine the partners in the above firm bemoaning "the youth of today who don't want to work hard" or losing work to competitors when their one-to-one relationship with a key client fails to survive the arrival of a new general counsel. I can also imagine these partners getting pretty nervous as they approach retirement, particularly since their unfunded pension requires the firm to not only survive, but to carve out a significant portion of future earnings to fund the partners' retirement incomes. Who in their right minds, let alone any on their current staff, will willingly divert a portion of their income to support these stars who are doing little now to grow future rainmakers? A more likely outcome is that those junior lawyers with potential will move on, taking their income potential to greener pastures. Today's leading partners who won't cede the stage are tomorrow's disgruntled retirees, reliving their glory days.

This isn't a generational issue.  This is a leadership issue.  If your firm has erected barriers to entry for potential future stars to get playing time or to score a few baskets, take a hard look in the mirror. Will you allow them to blossom on your roster, or would you prefer to compete with them in the future when they're at the top of their game and you're at the end of yours?

Timothy B. Corcoran is the 2014 President of the Legal Marketing Association and an elected Fellow of the College of Law Practice Management. He delivers keynote presentations, conducts workshops, and advises leaders of law firms, in-house legal departments and legal service providers on how to profit in a time of great change.  To inquire about his services, contact him at +1.609.557.7311 or at tim@corcoranconsultinggroup.com.

The Changing Definition of Value: What Matters Most to In-House Counsel

The rules have changed. Law firm partners worldwide reached professional maturity in a much simpler world: One delivered a quality work product and everything else fell into place. Clients were satisfied, lawyers were engaged in thought-provoking work, associates received good training and generous, albeit hard-earned, revenues and profits ensued. This worked. Until it didn’t.

As with all extraordinary ecosystem disruption, many are reeling, casting about for an anchor in the storm. Partners face seemingly conflicting demands from clients who require quality work product but refuse to pay premium rates. To the clients, however, and particularly to in-house counsel, there is little conflict. The definition of quality has simply been redefined to encompass the manner in which legal services are delivered, and not merely the price or the outcome. And clients are happy to describe what this means to them.

“We’re in the midst of consolidating the panel of counsel that we use. We’ve identified five decision criteria that reflect our values: the firm’s relation- ship to us, including years of service and any customer relationship we have; billing rates for partners and associates; diversity; approach to resourcing and budgeting; and innovation,” reports Anne Sonnen, deputy general counsel and chief administrative officer for BMO Financial Group. Marilyn McClure-Demers, associate vice president and associate general counsel of corporate and intellectual property litigation at Nationwide Insurance, offers a similar robust definition: “Our top metrics are result, diversity and cost- efficiency, but this is closely followed by communication. This refers to timeliness, understanding urgency, managing expectations and helping us avoid surprises with our business management.” James Partridge, formerly chief counsel for outside counsel relations with Ally Financial Inc., and now consultant with Duff & Phelps, continues the theme: “We developed a scorecard to capture the metrics the company values. These include service quality, program delivery, cooperation and teamwork, communication, financial management and price, which is really a component of financial management.” 

To in-house counsel, quality lawyering is merely table stakes. It’s how outside counsel manage the relationship that matters most. “Outside counsel can be insensitive to the amount and frequency of communication that the client needs during the course of a matter,” laments Ted Banks, a partner with Scharf Banks Marmor and formerly chief counsel of global compliance for Kraft Foods. This is echoed by Partridge, who notes how exceptional good communication can be. “One firm impressed us by going well beyond our expectations for normal communication, providing a monthly update on all matters whether we asked for it or not, offering unsolicited insights on litigation techniques, jury pools, judges and the like. This was better than what the majority of our other outside counsel were doing. I liked this approach so much that I worked to turn it into an early case assessment process and asked other outside litigation counsel to adopt the approach.” 

Many in-house counsel report that a well-crafted project plan and an accompanying matter budget are critical to managing expectations with business leaders. Yet, law firms tend to resist such requirements, believing that the ebb and flow of complex matters, and certainly the outcomes, are beyond their control. While this is true to some extent, reports Banks, experienced lawyers can still provide directional guidance based on deep experience: “If you’re using a law firm that holds itself out to be an expert in a certain area of law, you expect them to provide a budget for a matter. What most in-house lawyers are looking for is a budget that gives an order of magnitude. Is this going to take 10 hours or 50 hours or 200 hours?” For law firm partners who fear encroachment from low-priced competitors, budgets based on a nuanced understand- ing of the various decision trees involved in a complex case can clearly differentiate subject matter expertise from those eager to win on price alone.

Of course, price is still quite important, which is why “cost-effective delivery of legal services” is a critical component of the outside counsel selection process used by CIT, a bank holding company, according to Bob Ingato, executive vice president and general counsel. This is defined, in part, by being “creative and flexible in designing and accepting alternative fee arrangements [AFAs] that align our interests and allow for shared success.” 

While some law firm partners may view AFAs as synonymous with “low cost,” in-house counsel, not surprisingly, have a different perspective. Most wish their outside counsel would take the initiative and offer more options. According to McClure-Demers of Nationwide, “By and large we don’t see proactive innovation. We find ourselves encouraging outside counsel to embrace creative value-based billing arrangements and opportunities.” But outside counsel don’t have to blaze this trail on their own. Sonnen avers that the best arrangements are developed collaboratively: “Many of our in-house team, along with outside counsel, have attended the ACC Value Challenge workshops, and as a direct result, we are piloting several different types of AFAs and having better conversations with our counsel about value. Cost is one factor to consider in determining value, but predictability and outcomes are also key.” 

Ingato says CIT isn’t only looking for firms with the lowest hourly rates. Rather, it seeks “competitive rates compared with the efficient delivery of quality legal services.” In-house counsel are increasingly analyzing fee trends and applying bench- marking to identify which tasks can now be performed routinely by multiple providers and which, according to the immutable laws of economics, should there- fore decline in price. Such sophisticated analysis has become much easier in recent years as new tools have emerged. Sonnen reports that at BMO “we’re incorporating a new electronic billing system, TyMetrix, that can provide far more analytics and support for AFAs.” 

And these tools capture more than merely financial metrics. Partridge indicates that “Ally regularly surveys each of its in-house lawyers to collect feedback. It imports the metrics into our Sky Analytics system, and then conducts financial and non-financial benchmarking. When a new matter arises and Ally needs to retain a firm, its lawyers can then query the database to find a firm that meets certain financial and non-financial criteria.” Over time, he reports, “non-financial measures grew to become a significant factor in [outside counsel hiring] decisions.”

According to Banks, solid relationships are based on more than price and out- comes. “If it’s litigation, you win some and you lose some, and most clients understand that. It is when the outside counsel presents an overly rosy assessment of a case, or fails to communicate developments that affect the likely outcome, that the relationship will suffer long-term damage.” The mandate to “learn my business” results from a common frustration by in-house counsel. As Peter McDonough, general counsel of Princeton University, says, “Higher education is different. Period. The lawyers who have made the deep and consistent effort to understand it, including the faculty-centric nature of it, and—very importantly—know how to avoid corporate-speak and truly use the language of a higher education environment without faking it have a huge leg up. Not getting that right is a deal-breaker.” This mind-set is shared by Banks, who pays careful attention to his style of communication now that he sits on the other side of the table: “I try to make sure that what- ever work product is delivered, is delivered in the format that the client wants. Some want to have a personal conversation, some want formal memos, some want results in PowerPoint. Clients generally don’t want highly formalistic structures of communication full of lawyer-speak.”

A key and growing imperative for many businesses is diversity. Many in-house counsel, Sonnen of BMO included, expect their law firms to value diversity as well. “Diversity to BMO is more than a social responsibility; it’s a business case,” she says. “There is a direct link between our diversity profile and our financial performance. Shareholder earnings are enhanced when we employ a diverse work- force, and we expect our key suppliers to reflect and support the same rationale.” At Nationwide, confirms McClure-Demers, diversity is also a critical initiative that matters to everyone, including the CEO. “Our outside counsel voluntarily submit their diversity metrics today, and our chief legal officer reviews this at least quarterly with our CEO to discuss our progress. We’ve implemented a new program recognizing diversity in our outside counsel. We’re a supporter of NAMWOLF [the National Association of Minority & Women Owned Law Firms] and will also be recognizing a NAMWOLF firm in this most important area.”

Firms that get it right will earn more business. McDonough confirms that “if a lawyer in a firm has wonderfully served us, we’ll follow that lawyer. Yet, if that lawyer’s colleagues also served us well, and we appreciated the firm on other levels—such as a real service mind-set, a real understanding of higher education, quality and consistency, pleasant people, etc.—we will try to also keep his or her former colleagues, and maybe even the firm in general, specifically in mind as opportunities develop.” McClure-Demers says Nationwide is eager to recognize outside counsel for outstanding efforts. As she indicates, “One of our outside counsel took the initiative to combine their institutional knowledge of our business, information from matters they were working on for us and insights looming on the horizon, and recommended a two-year litigation strategy to address these issues. The result clearly addressed our needs, but it also helped set new law and helped our industry as a whole. Our business management loved it!” The firm earned not only more legal work, but became more involved in legal strategy.

The legal marketplace is indeed changing, and law firm partners should take heed of the evolving definition of value and what matters most to in-house counsel. For every client seeking a low-cost provider, many others are seeking law firms who understand their business, who communicate frequently, who manage expectations through budgets and project plans, and who acknowledge the importance of a diverse workforce. Law firms getting this right enjoy loyalty and repeat business, the most critical ingredient for long-term profitability. What matters to your clients? What do they value? Don’t guess. Ask them.

This article was first published in ABA Law Practice magazine, Vol. 39, No. 6, November/December 2013, p. 46. Reprinted with permission. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Timothy B. Corcoran delivers keynote presentations and conducts workshops to help lawyers, in-house counsel and legal service providers profit in a time of great change.  To inquire about his services, contact him at +1.609.557.7311 or at tim@corcoranconsultinggroup.com.